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Every property buyer, being a resident individual, is required by law to deduct tax from the amount (price) he pays to the seller. However, where the seller is a tax resident in India, the TDS compliance is applicable only if the sales consideration exceeds Rs 50 lakh. In such a case, the buyer is liable to deduct tax at source (at the time of payment) at the rate of 1%. Furthermore, the tax department has notified a simplified compliance process involving a single Form to be filed as a tax payment challan-cum-return under buyer’s Permanent account number (PAN). There is no need for Tax Deduction Account Number (TAN) for the buyer or any separate TDS return filing.
In contrast, when buying property from an NRI seller, in addition to the TDS compliance requirements being much more complex, the buyer is required to deduct tax at the applicable income tax slab ‘rates in force’ before making payment to the NRI seller.
The detailed tax compliance process for buying property from an NRI seller is as under:
Obtaining TAN (Tax Deduction Account Number): Buyer should acquire a TAN under section 203A of the Income Tax Act before deducting TDS. TAN is a 10-digit alpha numeric number. To obtain a TAN, an individual needs to submit a Form online or offline at the Tin facilitation centers (TIN – FC) managed by NSDL.
TDS at the Time of Payment: Buyer must deduct TDS at the applicable income tax slab rates in force (which may work out to be higher as compared to TDS on resident seller) at the time of making payments to NRIs.
Deposit of tax deducted at source: TDS deducted by the buyer should be deposited with the government treasury as TDS payment on or before the 7th of the following month in which the TDS was deducted from seller.
e-TDS return filing: After depositing the TDS, the buyer should file e-TDS return (Form 27Q) within the deadline. Such e-TDS return is filed quarterly with the tax authorities by the last day of the month following the end of each quarter for the first three quarters and by May 31st following the last quarter. The buyer can file the e-TDS return electronically after verification through EVC or digital signature. Alternatively, an offline TDS return can be filed at a TIN facilitation center.
Issue TDS Certificate: After filing TDS returns, buyer needs to issue TDS certificate (Form 16A) to the NRI seller within 15 days from the due date of e-TDS return.
In case buyer does not comply with above process or there are discrepancies or any delay – the buyer may be subject to penalties and interest.
Moreover, when purchasing a home from a resident seller, the TDS compliance needs to be complied with only if the sales consideration exceeds Rs 50 lakh. However, in the case of acquiring a property from a non-resident seller, there is no such threshold limit for deducting tax. This means that even if the sales consideration is less than Rs 50 lakhs, the buyer still needs to comply with the TDS provision when dealing with NRI sellers.
The purchase of a property is not a recurring transaction. An individual may be compelled to obtain a TAN for the sole purpose of complying with the TDS compliances attached to buying a house from a non-resident seller and in most cases, will not use the TAN ever again, rendering the TAN inactive. This may result in the income tax system having a number of inactive TANs down the line. Moreover, the complexity of the TDS compliance process prompts individuals to seek assistance from tax experts, resulting in additional costs. The process of acquiring property from an NRI seller is inherently more complex and time-consuming when compared to transactions involving a resident seller. This, in turn, makes potential buyers reluctant to buy property from NRIs.
The government needs to facilitate ease of transacting and reduce compliance difficulties in buying property from NRIs. The government should consider simplifying the TDS compliance process for individual buyers when buying from NRIs. This can be done by making the TDS compliance requirements for individual buyers the same when buying from resident sellers and NRI sellers. The government should remove the need for the buyer to get a TAN in case of NRI seller and enable such buyers to use the PAN-based challan-cum-return form as exists in case of purchase of property from resident sellers.
Through such simplification, the government can significantly reduce the burden on buyers when acquiring property from NRIs. This, in turn, would foster a more straightforward and efficient process, encouraging individuals to buy property from NRIs as easily as in the case of resident sellers.
(The article is written by Mousami Nagarsenkar, Partner, Deloitte Touche Tohmatsu India LLP.)
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